Auto Warranty Basics: How Does It Work & Do You Need One?

What Is an Auto Warranty?

An auto warranty, which comes in the form of a vehicle service contract (VSC) or an extended auto warranty, is a contract between a vehicle owner and a warranty provider. It offers coverage for certain repairs and replacements of specific components or systems within a specific period. Warranties can cover a wide range of parts, including the engine, transmission, electrical system, and so on.

Types of warranties

You may encounter several types of auto warranties when researching the subject, which may offer different levels of coverage and duration. The most common types include:

• Manufacturer's warranty: This is a new car warranty that typically comes with your vehicle purchase from its manufacturer. It is also called a factory warranty. It covers defects in materials or workmanship for a specific period or mileage. It usually comes in two layers of coverage, initially offering bumper-to-bumper protection for a short time, then basic powertrain protection for the remainder of the warranty's term
• Extended auto warranty: This is an additional warranty purchased separately to extend the coverage beyond the manufacturer's warranty period. After the original warranty expires, you may extend your coverage by purchasing a plan from the manufacturer or third-party companies 
• Certified pre-owned warranty: When purchasing a certified pre-owned vehicle from a dealership, it may come with a warranty that offers extended coverage and assurance of vehicle quality
• Aftermarket warranty: These are extended auto warranties that come from third-party providers, which may refer to them as service contracts or VSCs. They provide coverage akin to that of manufacturer warranties or extended warranties. They are usually purchased for used cars or to extend the coverage on older cars

How Does an Auto Warranty Work?

Auto warranties typically cover specific components or systems of the vehicle, such as the engine, transmission, electrical systems, and drivetrain. However, the exact coverage can vary depending on the warranty type and provider. It is crucial to carefully review the terms and conditions of the warranty to understand what is included and excluded from coverage.

Most people are unaware of how expensive car parts can be until they need to buy replacement parts or pay for repairs following a breakdown. You might have to spend hundreds or even thousands of dollars on new parts and repairs for your car if it does not have any coverage. Here is a breakdown of the relative costs of various parts of a car.

• Engine: The engine is the heart of the car and is one of the most expensive parts to replace. The cost of an engine replacement can vary depending on the make and model of the car, but it can easily cost several thousand dollars
• Transmission: The transmission is responsible for transferring power from the engine to the wheels. It is another expensive part to replace, and the cost can vary depending on the make and model of the car. It can cost anywhere from $1,800 to $6,000, possibly more
• Brakes: Brakes are one of a car's most important safety features and should be replaced regularly. The cost of brake replacement can vary depending on the make and model of the car, but it is typically around $500 for a front brake job and $700 for a rear brake job
• Exhaust system: The exhaust system is responsible for removing harmful gases from the engine. It is not as expensive to replace as some other parts of the car, but it can still cost several hundred dollars
• Suspension: The cost of changing this depends on whether it is your front or rear suspension, but it will generally fall between $1,000 to $5,000
• Routine maintenance: Regular car maintenance is crucial to keeping your vehicle running smoothly. This includes tasks like oil changes, rotating the tires, flushing the brake fluid, replacing the air filter and spark plugs, and inspecting the belts and hoses. These maintenance tasks may cost a few hundred dollars for each check-up, but they are essential to prolonging the life of your car. Although most extended warranties will not cover these routine maintenance tasks, some providers offer them coverage in their plans

The final cost of replacing a car part will fluctuate depending on various factors, including the car's make and model, the extent of the damage, and labor costs. However, it is a known fact that maintaining and repairing a car can be expensive. To mitigate these costs, extended warranties can provide a lot of financial relief.

Auto warranty coverage and limitations

Most warranties have certain limitations and exclusions. Common limitations include the following:

• Age and mileage restrictions: Some warranties may have restrictions on the age or mileage of the vehicle at the time of purchase
• Deductibles: Many warranties require the vehicle owner to pay a deductible for each repair visit
• Wear and tear exclusions: Normal wear and tear, routine maintenance, and consumable items like brake pads or tires may not be covered
• Unauthorized repairs: Repairs done by unauthorized mechanics or using non-approved parts may void the warranty
• Pre-existing conditions: Warranties may not cover pre-existing problems or issues that existed before purchasing the warranty

How to use a warranty

To use your warranty to its full potential and get your money's worth, do the following:

• Personalized coverage: Craft a personalized coverage plan by consulting with your provider and exploring available options
• Read the fine print: Make sure you understand the terms of the warranty before signing anything. This includes understanding what is and is not covered and any exclusions or limitations
• Select your repair shop: Select a repair shop of your choice, as most vehicle protection plans are accepted at duly accredited repair shops anywhere in the US, including national chains, independent repair shops, and dealerships
• Keep good records: Keep all of your service records and receipts, as this will help you if you need to file a claim
• Follow the claims process: The repair shop will inspect the car and forward its findings to your service provider's claim department for approval before commencing repairs. Your claims will be settled directly with your chosen repair shop upon completion of repairs and approval of your claim
• Be prepared to pay a deductible: Most extended car warranties have a deductible, which is a portion of the repair costs you will be responsible for
• Find out if your warranty covers trip interruption fees: In the event of a trip interruption, or a breakdown sufficiently far away from home, you may be eligible for reimbursement on rental cars, ride-shares, and other expenses that may also be covered under most warranties
• Roadside assistance: If your car breaks down while on the road, a warranty can provide roadside assistance that includes cost-effective towing services and other beneficial features
• Work with a reputable company: Perhaps most importantly, when purchasing a car warranty, it is important to work with a reputable company. Many companies sell extended car warranties, but not all of them are created equal. Do some research and compare prices before you buy. We include an overview of some of our recommended providers at the bottom of this article

Why Should You Get a Warranty?

Certain people opt out of buying an extended auto warranty due to the expenses involved. However, a majority of consumers are not informed about the fact that without appropriate coverage for their vehicle, they will end up spending significantly more on repair and replacement costs.

We understand how difficult it can be when your car breaks down, especially if you're stuck or in a hurry. For some Americans, losing access to their car could result in losing their job or missing important events. It is beneficial for vehicle owners to have an auto warranty, and it is important to evaluate its advantages against the drawbacks of not having one based on your unique life circumstances. Some of the benefits of having one include:

• Financial protection: Auto warranties provide coverage for unexpected repair costs, saving owners from significant out-of-pocket expenses. This can be especially valuable for expensive repairs or major component failures
• Peace of mind: Knowing that a warranty protects your vehicle provides peace of mind and reduces stress associated with potential breakdowns or mechanical failures
• Flexibility and convenience: Many warranties offer additional benefits like roadside assistance, rental car reimbursement, and trip interruption coverage, adding convenience and support during unexpected situations
• Increased resale value: A vehicle with an active warranty can attract potential buyers and may have a higher resale value compared to a similar vehicle without warranty coverage

Conclusion

Auto warranties offer financial protection and peace of mind for vehicle owners. Understanding different types, coverage, limitations, and benefits is crucial when making informed decisions. Familiarizing yourself with the intricacies helps you make confident choices that align with your needs and budget. Carefully review the terms and conditions, ask questions, and choose a reputable provider for a hassle-free experience. With an auto warranty in place, you can enjoy the open road with confidence, knowing you're protected from unexpected repairs.

Common Questions About Auto Warranties

What is a factory warranty?

When you purchase a new car, the manufacturer's auto warranty, also referred to as a "factory warranty," is usually provided and typically lasts for a few years or miles. The standard coverage is approximately three years, or 36,000 miles. 

Do I need an extended car warranty if I'm already covered under the manufacturer's warranty?

You don't need an extended auto warranty if your car manufacturer provides coverage. Paying for two warranties is redundant since the factory warranty was included in the initial cost. However, it's important to note that this type of warranty usually only covers the most basic parts of the car. You may want to consider investing in an extended auto warranty for more comprehensive coverage.

How much does an extended auto warranty cost?

The average cost of an extended auto warranty is $2,000 to $5,000 per warranty term. The cost will vary depending on your car's make, model, year, mileage, and the specific coverage you choose. The length of the contract will also affect the cost. Obtaining quotes from multiple providers and comparing their coverage and prices is essential to finding the option that fits your needs and budget.  Extended auto warranties are not always worth the cost. If you have a reliable car that is not likely to need major repairs, you may be better off saving your money. 

Can you get a car warranty on a tight budget?

Regardless of your budget, you can find an auto warranty that suits your needs. With a basic coverage plan, you can receive the specialized protection necessary to save money on auto repairs and parts. Don't let spending limits stop you from getting the coverage you need while on the road.

How do you file a warranty claim?

To file a claim, you typically need to contact the warranty provider or their claims department and provide the necessary documentation, such as the repair invoice and vehicle information. The provider will guide you through the claims process, which may involve taking your vehicle to an authorized repair facility for diagnosis and repairs.

Does the warranty for a car remain valid even if the car is sold before the warranty period ends?

No matter who the owner is, an auto warranty should usually endure until the end of its term. As it were, this is the case most of the time, although some providers may limit their contract transferability to one other owner. That being said, car warranties are linked with the VIN, not the owner's name, which is why they are still in effect even if the vehicle is sold. Because of this, most car warranties are typically really simple for buyers and sellers to transfer.

Is it possible to transfer your warranty to someone else?

In most cases, it is very easy to transfer your auto warranty. That said, some manufacturers forbid warranty transfers. Many automakers have service or mileage restrictions on their warranties. It is important to check with your service providers to find out.

At what point should you consider extending your warranty?

You must bear in mind that once your initial mileage has been reached or the factory warranty period has expired, you are no longer protected and are responsible for paying for any necessary repairs or replacement parts. This would be the perfect time to extend your auto warranty, although there is no wrong time.

Can you cancel your extended auto warranty?

Extended auto warranties can usually be canceled, but the terms and conditions regarding cancellations and refunds may vary among providers. It's important to review the cancellation policy outlined in the warranty contract and contact the provider directly for instructions on how to cancel.

If you live in California, can you get an auto warranty?

Yes, you can get an extended auto warranty in California. However, there are some specific regulations that you should be aware of. The Department of Insurance oversees extended auto warranties in California and must license any company that sells or administers an extended auto warranty in California. Because of their strict regulations, not all warranty companies are allowed to sell their products in the state, although some dealerships are able to do so. Third-party providers that sell warranty protection there do so as mechanical breakdown insurance (MBI) policies, which can provide you with similar coverage options.

Our Top Recommendations

Now that you have a comprehensive understanding of how auto warranties work let’s take a look at some of the top-performing companies in the industry. 

CarShield Car Protection

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CarShield is one of the top auto warranty companies in the country. You can take comfort in knowing capable hands will care for your vehicle. CarShield only works with the most reliable companies in the industry.

CarShield has many services, such as 24/7 roadside assistance, towing service, rental car compensation, and more. As a major plus, the customer support at CarShield is top-notch. So, CarShield is the top choice on our list. They also sell five different plans with differing levels of coverage.

The seven contracts that CarShield advertises are:

• Diamond Plan Warranty (best coverage)
• Platinum Plan Warranty (comprehensive)
• Gold Plan Warranty (powertrain plus)
• Silver Plan Warranty (powertrain)
• Aluminum Plan Warranty (specialty coverage)
• EV coverage (two levels of electric vehicle protection)
• Motorcycles & ATVs (two levels of alternative vehicle coverage)

Read our CarShield review to learn more about their plans in-depth.

Endurance

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Endurance is another highly recommended provider on our list, and the top choice for many people. The company sells many flexible plans, and sells their coverage nationwide— even in California. And they may not charge an interest fee, even if you pay over the course of two years!

With them, you can pick the repair facility that you want. Also, there is a cancellation policy as well as a money-back policy. As for the contracts, the options include:

• Supreme Warranty (exclusionary coverage)
• Superior Warranty (most listed components)
• Secure Plus Warranty (powertrain plus)
• Secure (budget-friendly)
• Supreme Wrap ('wraps' around an existing powertrain warranty)

Read our full Endurance review here to learn more about these plans.

Olive Auto Warranty

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After this company rebranded in 2020, it took the industry by storm. They are known for their comprehensive coverage, easy-to-use plans, and customer-friendly policies. Thus, Olive has earned a worthy spot on our top-three list.

These are the three contracts that Olive offers:

• Powertrain Warranty (basic plan)
• Powertrain Plus Warranty (major mechanical components)
• Complete Care Warranty (comprehensive)

To get an in-depth look at Olive car warranty, read our comprehensive review here.

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